Central bank digital currencies (CBDC) are emerging worldwide, bringing new capabilities and opportunities to financial systems.
Although central banks are the driving force behind CBDCs, the development of a coherent ecosystem in co-operation with private stakeholders is also essential for success.
A report, published by the SecurityTech company Giesecke+Devrient (G+D) and the independent think tank Official Monetary Financial Institutions Forum (OMFIF), sheds important new light on how to create a thriving CBDC ecosystem.
For many central banks, the introduction of a digital form of cash is not a question of if, but when and, more importantly, how. CBDCs cannnot exist and evolve in isolation. It will require, among other things, interoperable systems that enable efficient and fair transactions, along with a regulatory framework supporting global interoperability principles.
A wide range of participants will be involved in the creation and operation of CBDCs, with an even wider range of beneficiaries. One key motivation for central banks to collaborate within an ecosystem – or network of organisations – is to foster innovation.
CBDCs, beyond serving as a complementary public means of payment to cash, hold the potential to become a platform for innovation and the cornerstone of an entire digital economy.
The new report, “Unlocking the potential of a CBDC ecosystem”, published by OMFIF in partnership with G+D, looks into ecosystem participants and its potential opportunities. It also explores the challenges faced by central banks in realising the CBDC ecosystem, as well as its value to private sector stakeholders and individuals.
The report delves into the CBDC ecosystem, highlighting the organisations involved, the benefits such a network could bring, and the practical challenges that must be addressed to bring about these advantages.
Before exploring the potential innovations of a central bank digital currency, it is important to consider the participants in its primary functions, such as its issuance, operation and regulation.
The study interviewed 10 key organisations that would make up the CBDC ecosystem, including four central banks, two technology providers, two merchants, one commercial bank and one payment service provider.
As the CBDC ecosystem evolves, important strategic decisions must be made to ensure it delivers on its promised benefits. The report by OMFIF and G+D serves as a guide to navigate the factors influencing the decisions that central banks are grappling with.
Key findings include:
* Central banks will operate the core system while private sector intermediaries provide new services to facilitate payments and conduct compliance.
* Industrial and real economy players along with individual end users and merchants stand to benefit significantly from the new ecosystem.
* CBDCs can deliver programmable payments, which should unlock valuable benefits for businesses, citizens and governments.
* CBDCs can play an important role in facilitating the settlement of digital assets, supporting the growth of the digital asset ecosystem.
* Ensuring interoperability among CBDCs and existing payment systems will require a collaborative effort between technical service providers and regulators.
* All ecosystem players will need to participate in the communication effort to educate end users.
“CBDCs have the potential to transform society and lay the foundations for economic growth and social progress in the years to come,” says Dr Wolfram Seidemann, CEO of G+D Currency Technology. “There are still some challenges to overcome along the way, but the benefits for consumers, competition and power of innovation speak for themselves. Now is the time to seize the opportunity to lay the foundation for the future financial system.”
Pictured: Dr Wolfram Seidemann, CEO of G+D Currency Technology (Source: G+D)